Raben: ESG Opposition is an Attack on Diversity
Robert Raben is the founder and executive director at the Diverse Asset Managers Initiative. With nearly 30 years of professional experience as an attorney, senior Hill staffer, and Assistant Attorney General, he has developed a nuanced understanding of both the legal subtleties and the political realities of the issues he handles. As the founder of DAMI, Robert has galvanized a consortium of financial services professionals, institutional investors, corporate and philanthropic board members and trade associations committed to raising awareness among institutional investors about the benefits and opportunities of investing funds with diverse-owned asset management firms.
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Across America, politicians and advocates are leading a movement to regulate and penalize corporations and asset management firms that support what’s known in the C-Suite and in investment circles as “ESG,” short for Environmental, Social and Governance principles.
The simple premise behind ESG, which is not a term of art, is that companies that promote diversity, green technology and other values are good bets; these are companies that attract the best talent, innovate the most and provide the strongest ROI for shareholders and investors.
A common, but disingenuous talking point for objections to ESG is, in short, that corporations that engage in these practices are imposing their social and political ideologies on consumers and investors.
While much of the coverage on this issue focuses on fossil fuels and the environment, there’s a more insidious motivation: opposition to efforts to bring women and people of color into leadership on corporate boards and C-Suites.
This is not happening in a vacuum; ESG is the new Latinx or CRT, which itself has been replaced by attacks on straightforward AP African American history—with the same playbook; mischaracterize an inscrutable subject, imbue it with a scary racial or sexual motivation, and say it over and over again.
Florida Governor Ron Desantis directed all Florida pension funds only to consider “pecuniary factors” in their investments. In his second inaugural address, he repeated his infamous line that Florida is “where woke goes to die,” with “woke” a shorthand for, among other things, ESG.
He’s not alone. Arizona state treasurer Kimberly Yee pulled state pension money from the nation’s largest asset management firm, BlackRock, saying that CEO Larry Fink “began dictating to businesses in the United States to follow his personal political beliefs,” a reference to Fink’s stated interest in fighting climate change and bringing more women and people of color into management.
A state representative in the Indiana legislature has introduced a bill that would require the state’s public pension system to divest from firms and funds that use “non-financial investment criteria.” According to the Indiana Office of Management and Budget, this bill could cost the pension $7 billion in returns over 10 years, contradicting the erroneous claim by the bill’s author, Rep. Ethan Manning that the legislation, if passed, would “focus [...]pension investments on financial factors.”
The University of Texas, which doesn’t publish ESG investment reports, has an investment policy, which states that its investment management company cannot make investments to “achieve temporal benefits for any purpose, including use of its economic power to advance social or political purposes.”
The outgoing ranking member of the Senate Committee on Banking, Housing, and Urban Affairs, Pat Toomey , wrote a letter to then-Federal Retirement Thrift Investment Board (FRTIB) acting chairman, David A. Jones, accusing BlackRock of prioritizing personal policy views over fiduciary duty.
Mr. Toomey wrote that BlackRock is “increasingly incorporating left-leaning environmental, social, and corporate governance (‘ESG’) priorities into [proxy voting] guidelines. For example, BlackRock announced that in 2021 ‘key changes’ in its voting guidelines ‘address board quality; the transition to a low-carbon economy; key stakeholder interests; diversity, equity and inclusion; alignment of political activities with stated policy positions; and shareholder proposals.’ Not to be outdone, SSGA’s CEO stated ‘our main stewardship priorities for 2021 will be the systemic risks associated with climate change and a lack of racial and ethnic diversity.”
The most generous assessment about these lines of attack is that they are fraudulent, as corporations have engaged in ESG — social issues — for centuries.
Corporate America successfully insisted that, under our Constitution, the corporation itself has a voice. Dozens of major American businesses collectively spent tens of millions of dollars to successfully persuade the Supreme Court in Citizens United that they have an unlimited right to weigh in on social issues like taxation, whether or not they can fire gay people for being gay, or participate in insurance plans that offer abortion.
For what purpose do you demand to have a voice if not to use it?
Before the Civil War, Aetna insured slave owners for losses when slaves were injured or died. Ford Motor Company’s executives distributed violent, anti-semitic propaganda. Cracker Barrel and Coors fired gay employees for being gay. Chevron and other fossil fuel companies repeatedly undermined or strengthened foreign governments, depending on their market interests. Chick-fil-a would be 1/7th more profitable if it didn’t close on the Sabbath, but it chooses to exercise its social preferences.
And through the U.S. Chamber of Commerce, Corporate America litigates social issues with economic impact, from opposing California’s effort to regulate a less violent method of “processing” hogs, to weighing in on every aspect of affirmative action policies or gay marriage. And CEOs like Bernie Marcus, Sheldon Adelson and Phil Knight have written the book on using their corporate assets to promote, well, everything.
The goal has never been to divorce politics from business principles, but, rather, to ensure that business principles don’t stray from a specific orthodoxy.
Even on the molten core issue of the ESG objectors’ animating issue – the environment – companies spend hundreds of millions of dollars influencing the outcome of climate regulation for the promotion of fossil fuels and the defeat of pro-green legislation and regulation. Just take a look at The Chamber of Commerce’s Litigation Center. They boast dozens of challenges to environmental regulations.
If the ESG objectors would like it to be unlawful under ERISA to fight pollution but lawful to promote it, then say that. But framing the issue as an inappropriate exercise of fiduciary duty is a lie.
We are not going to stop demagogues from demagoguing but there are multiple ways to fight back.
We have to start with centrist business leaders who know better but rely on cautious and anodyne corporate PR to defend themselves. That won’t cut it. Opponents are accusing companies of misusing money with an agenda, and CEOs are responding with an ineffective refrain of “No we’re not!”
Fink’s 2022 letter to BlackRock investors defending its interest in being responsive to companies who care about ESG sadly exemplifies this: “BlackRock does not pursue disinvestment from oil and gas companies as a matter of policy.” Recently at Davos, Fink said we have to change the narrative, and he’s going to address this in his next corporate letter.
This is an asymmetry which is going to kill us – the ESG objectors are trying to legislate you out of diversity and climate change, and the proponents are…writing letters.
An effective approach would be taking objectors at their word. If the issue is that corporations and asset managers ought to be out of the business of social issues, we should take that deal. People agree not to promote climate change through their shareholder initiatives, and other people agree not to deny employees abortion coverage in the health plan, or stop supporting ALEC for its tax policy advocacy.
Watch: crickets.
We’re better off pulling the band-aid off the attacks.
The attackers know the dog whistle is more effective than explicit racism and sexism, which is why they use euphemisms like “woke.” But arguing with them is pointless – they know exactly what they are doing. When Army lawyer Joseph Welch says to Senator McCarthy “have you no decency,” the Senator is not the audience—it's the millions of people in the center who need to be motivated to speak out and speak up.
That’s what’s going on here.
The Finks of the world need to ask “Why do you oppose us fighting for women in the C-Suite?” “What is your objection to African Americans serving on corporate boards in which we invest?” “What’s your issue with promoting new technologies that save the planet and create new jobs and lines of business at the same time?”
The pro-ESG companies and asset managers that invest in them need to band together to fight back. Your trade associations are not doing it, and won’t. The SEC and Department of Labor need to double down on the efficacy of ESG done right, and also the fact that it’s corporate and asset manager choice — as long as there is transparency to shareholders, companies should be able to choose whether and what social issues to engage on.
This fight is about telling the truth. But the phonies are winning this battle. Centrist CEOs need to step up now.